Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two
Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
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NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part One
@Tonya, @lioness, @Somerfugl I agree that Vancouver is messing with us now. I applied a couple of weeks ago for an appointment in January 2015. I received the automated reply with the forms to complete. I completed them and sent them in and got an automated reply, nothing further for about a week so I re-sent info to both the specific renunciation address and the general address. Automated replies only. I waited a few more days and then wrote back with the “request for specific information” int he subject line. They replied quickly but said basically – we got your e-mail, be patient.
I am now going to contact Calgary. What a huge pain.
@lioness
I think you may be confusing the 8854 rules that apply to a covered expat with those that apply to a non-covered expat. If so, not surprising as the rules don’t follow logic.
In order to not be a covered expat you must, among other things, have a net worth below $2M USD. If you are not a covered expat then the exit tax does not apply to you and you don’t have to worry about the $680k (2014) capital gains exclusion, as there’s no exit tax to pay. I’m assuming that your goal is to be a non-covered expat as you seem to be trying to get your net worth below $2M. Am I correct?
If, OTOH, you are a covered expat, then your net worth is totally irrelevant (see, I said no logic), and you pay the exit tax, and the $680k exclusion comes into play. The exclusion applies to the gains on the deemed sale of your assets, not on the assets themselves.
Note that even with just $1.7M in company investments, you may still breach the $2M threshold as all assets are considered; e.g. home, other real estate, RRSPs, TFSAs, taxable accounts, present value of pensions, car(s), etc, etc, etc.
FWIW, this may help: http://hodgen.com/chapter-4-are-you-a-covered-expatriate/
All chapters can be found here: http://hodgen.com/category/exit-tax-book/
I’m somewhat unclear on your situation and your goal, so I may have misunderstood what you wrote.
@calgary411
That’s a good question. I would *think* he should be able to, and it seems logical that he should be able to do so. Having said that, I’ve not heard of anyone doing so, and haven’t seen the situation really discussed by knowledgeable people. Also, hoping for logic from IRS rules and regulations is not something to hang one’s hat on.
Additionally, note that if he has any PFICs (Canadian mutual funds) outside of a RRSP, then it may complicate things. The way it was explained to me (IANAA!) was that the some kind of baseline is created for year 1 and all subsequent calculations are directly or indirectly dependent on that baseline (assuming the PFIC is not sold during that time). Thus, adding a previous year (year 0) throws off the calculations for years 1 to 4. My understanding of this is extremely fuzzy so I can’t really say more.
Many of us are making a very basic error. We are trying very hard to play by their rules. Well guess what – the game is fixed – and playing by their rules is bound to fail.
The rules were made for wealthy Homelanders who dared leave in order to evade taxes. They were not meant for accidental Americans who earned all of their income in other countries and invested in mutual funds, homes and all the other normal things. We are collateral damage.
In this situation, anything we can do to reduce the damage is fair game.
I just noticed that Maz57 beat me to it with a much better post on the State Dep’t to hike fees thread. I agree with him totally.
@tdott: thank u. It is becoming clearer. My goal is to have a net worth under $2 million and the company is the only asset. too bad I worked all those long hard hours and days just to give it to the US.
Thanks Tdott, sorry for the delay, had a long commute home.
One question for my sanity, if one is able to qualify for “relinquishment”, are they still liable for the “exit tax”?
When I first started this whole lousy process, I contacted a law firm in Calgary and they quoted $25k to get me out of this mess. This was my first experience and from there I started calling various accountants. Prices varied considerably but no body told me that I didn’t actually have to come into compliance.
To be honest, I’m not sure where I exactly sit with respect to the potential liability of the exit tax. I think I am under the allowed capital gain but I might be close.
Then, with all the fear surrounding our own banks looking for us and what would happen if the IRS found you before you came into compliance voluntarily, I decided to enter the streamline filing process and the invasive FBAR filing. The accountants that I phoned certainly didn’t suggest any other avenue.
I honestly didn’t realize that by doing this, I would screw my chance to relinquish as oppose to renounce. It is all so very confusing.
Based on the comments from quite a few of you, I guess I’m now stuck on renouncing and that I should go ahead and file 2014 to get my “5 years” so that I am compliant and I avoid the exit tax mess.
I really hate this stuff and have not been sleeping well. This experience has not been a good one.
Hi Duke of Devan, you have my permission, especially if it helps others
Thanks Neill. I just hate wasting hard earned money on this absolute nonsense.
tdott, thanks. Then with this in mind, perhaps coming into compliance and avoiding the “exit tax”, assuming that the “exit tax” is levied even if you renounce, is perhaps the safest bet?
James,
I’ll bet everyone of us here can relate to your saying that you haven’t been sleeping well. Please stay tuned here and take care of yourself the best you can so this doesn’t overwhelm you. One small step at a time. You really are among people who understand what you are going through. Damn this all to hell.
Thanks Calgary411, I appreciate the kind comments. My wife, who is “pure” Canadian doesn’t seem to think it is that much of a big deal. For me, I see it as a threat to everything that I’ve worked so hard to achieve. My struggle to get on top of this threat and finally deal with it just makes it worse. A real nightmare. It also bothers me that both lawyers and accountants are willing to use this opportunity to take advantage of people who have been unfairly targeted.
James, I hope you have also read of the Canadian challenge by Alliance for the Defence of Canadian sovereignty. It is a way to fight the monster that has come into our lives. http://www.adcs-adsc.ca/
You’re absolutely correct — all of this is a threat to everything you’ve worked for. Others, including our spouses sometimes, think we are blowing this out of proportion. We aren’t. It is a nightmare and, yes, the US tax compliance industry is a product of the US HIRE Act that brought FATCA into the world the same way implementation of an intergovernmental agreement for FATCA was legislated by the Canadian Conservative government — by stealth, behind closed doors — both omnibus bills.
Hi Calgary411, yes I’ve read and donated at ADCS. I’m really hoping they are successful. I also hope the UN submission gets considered.
James, thank you!!
@James, as far as relinquishment goes it really depends on when you did the relinquishing act. In your case, if you hadn’t filed US tax returns after getting your Canadian citizenship the answer is no you would not. Your Canadian citizenship date of 1995 means the 8854 form basically wouldn’t have applied to you as you relinquished before the form was even thought of.
However, for people who have relinquished after June 4th 2004, the form applies and does have to be filed by relinquishers as well as renouncers if they don’t want to be covered expats.
Thanks Medea. Another question if you don’t mind. I did renew my US passport once after I obtained my Canadian Citizenship back in 1990. I think I renewed it in 1992 but haven’t renewed it since. Would that act also have eliminated my opportunity to relinquish?
@James, yes it would. The presumption would be the same as you filing US tax returns. You got a new US passport after getting Canadian citizenship, therefore you didn’t intend to lose the American one. By getting a new US passport you indicated that you never intended to give up the citizenship and considered yourself to be a dual national.
Thanks Medea, so I guess in the end I actually did the right thing….enter the streamline process. I wonder if the US would have checked records going back 20 years to find this mistake.
Can anyone let me know what the tax consequences are of the following actions with respect to renouncing:
1) moving stock trading account under my pure Canadian spouse (is currently a joint trading account)
2) moving house under my pure Canadian spouse (currently jointly owned)
@James,
If you are considering re-arranging your finances to get below the $2M threshold, you might want to take in this free seminar by Moody’s. It’s coming up in Calgary (Sep 25), Saskatoon (Oct 16) and Vancouver (Nov 29). Since they cater to high net-worth clients, these seminars deal a lot with being a covered expat and why you want to do everything you can _not_ to be a covered expat.
http://www.moodysgartner.com/learning-tax/
So James, unfortunately you took 2 steps into the quicksand but believe me you are not alone. Up until relatively recently there simply wasn’t any awareness or any effort on the part of the USG to enable awareness about all the dips and doodles of being a US citizen or person outside the borders or across the seas from the “homeland” — you know, the lands of the personae non gratae. Some of us weren’t even connected to the internet in the 1990s and if you don’t know there are questions you should be asking and what those questions might be, you really aren’t likely to be out researching these unknown unknowns. You can’t rely on logic because that up and left the place decades ago. Even if you had an inkling of a question to ask then chances are you would not have received a reliable answer from the IRS or any other USG agency you managed to negotiate your way to through telephone hell. Despite this, the USG places all the onus, all the blame, all the cost, all the time, on you to correct your own situation. Try phoning the IRS with a question and chances are they will decline to answer because it is beyond their expertise. They will simply fob you off to a “professional tax preparer” and finding a good one of those is a crap shoot. The convoluted and bulky US tax codes are actually beyond any one person’s expertise. So it comes down to you doing your best, crossing your fingers and waiting for the expiration date on the Statute of Limitations (SOL). What a “system”!
I believe northernstar knows someone who mistakenly filed US taxes after relinquishing without causing their US citizenship to be reinstated. A tax filer not a citizen makes, as it turned out.
James Both transactions recommended if necessary to get your net worth under the limit.
Thanks Kalc, does either transaction trigger a “gift tax” if it is to your spouse?